CHICAGO (Reuters) - (The writer is a
Reuters columnist. The opinions expressed are his own.)

Ed Slott is a certified public accountant by training, but he admits
that his professional colleagues have their faults. “By nature, we are
history teachers - we’ll tell you what you should have done last year,
after it’s too late.”

Slott is an author and retirement expert, and one of the nation’s
leading authorities on individual retirement accounts or IRAs. Right
now, he sees a couple of opportunities that IRA owners should consider
in light of the new U.S. tax law. But they will not be available at tax
time next spring when you talk with your accountant - the window for
taking action will start to close later this year.

One of those opportunities concerns new rules governing the conversion
of assets from traditional to Roth IRAs.

Roths accept only post-tax dollars, and gains going forward are
tax-free, assuming the distribution is made after age 59-1/2 and the
account has been held at least five years. Unlike a traditional IRA,
contributions can be withdrawn at any time without penalty. And Roths
usually are not subject to required minimum distributions after age
70-1/2.

Conversions are available to anyone, but often make the most sense for
higher-income retirement savers seeking to get more dollars into Roths
than can be done via direct contributions. Roths are subject to the same
annual contribution limits as traditional IRAs ($5,500 this year, or
$6,500 if you are age 50 or older). And direct Roth contributions are
also phased out for higher-income workers (for example, joint filers
with adjusted gross income less than $189,000 may contribute up to the
limit this year; the cutoff for single filers is $120,000).

There are no limits on conversion amounts from traditional to Roth IRAs.
But they come with a cost: conversions are treated as ordinary income in
the year of the conversion - generating an income tax bill at your
current tax rate.

The Tax Cuts and Jobs Act of 2017 (TCJA) places one new restriction on
Roth conversions by eliminating recharacterizations or reversals. Under
the old rules, an investor could convert a traditional IRA to a Roth,
but then reverse the decision anytime before the following year’s tax
return deadline. That could be advantageous, for example, if you
converted $20,000 in mutual fund assets to a Roth before the end of the
year, only to see the fund’s value fall to $12,000 by the following
March. “In that case, you’d be stuck paying tax on value that no longer
exists,” Slott notes.

The new rule applies to conversions done in 2018 and in the future - but
one recharacterization opportunity remains. According to the Internal
Revenue Service, 2017 Roth conversions can still be undone until Oct. 15
this year.

In the current volatile stock market, changes in a fund value might
not be an easy call. But if you moved to a lower tax bracket this
year due to the TCJA (or if your income simply dropped), a change in
tax brackets could present a recharacterization opportunity: reverse
the 2017 Roth conversion and replace it with a Roth conversion this
year at lower tax rates.

Slott offers one caveat to this strategy. “If you are
looking at large gains on a 2017 conversion, I wouldn’t undo it even
if you pay a bit more in taxes - since the gain is tax-free.”

That point underscores a key point about Roth conversions - there is
no one-size-fits-all answer. Conversions do raise a pay-now or
pay-later question. They make the most sense for older retirement
investors who tend to be in higher tax brackets, and a bit less for
those who expect income - and tax rates - to fall in retirement.
“Everyone needs to do their own analysis,” Slott said.

He offered a middle ground: make a series of smaller annual Roth
conversions, working up to the top of your tax bracket. For example,
a married couple with income of $100,000 is in the 22 percent tax
bracket; the 24 percent bracket kicks in at $165,000. “They could
convert another $60,000 without kicking themselves into the higher
bracket,” he said.

For older IRA owners, the TCJA has created an incentive to use a
little-known route to making charitable contributions: The Qualified
Charitable Distribution (QCD).

The QCD allows IRA account holders who are at least 70-1/2 years old
to make direct donations up to $100,000 annually without first
taking a distribution. The TCJA raised the standard deduction to
$24,000 for married couples - and for taxpayers above age 65 it is
$26,600. That means many more people will be taking the standard
deduction, Slott noted, making charitable contributions more
“expensive.”

The QCD donations are excluded from taxable income, which means this
amount effectively is added to your $26,600 standard deduction.
“Excluding something is the same as deducting,” he said.

The QCD also counts any required minimum distributions that you must
take starting at age 70-1/2. And keeping these donated dollars out
of your adjusted gross income also can help avoid income tax bracket
creep, and reduce taxation of Social Security benefits. It also can
help avoid Medicare’s high income premium surcharges.